Hertler Market Signal Update #732 4/03/2016 1
Hertler Market Signal Update
#732 April 3, 2016
The SMI continues to be very bearish; Sentiment indicators are also
bearish.
1500
1600
1700
1800
1900
2000
2100
2200
-2000
-1000
0
1000
2000
3000
4000
5000
5/1/13 11/1/13 5/1/14 11/1/14 5/1/15 11/1/15 5/1/16
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
Smart Money Index (SMI)
___SMI 50-DMA
___SMI 200-DMA
S&P 500 vs Smart Money Index
The Smart Money Index continues to churn just below its high. Above both moving
averages, it remains extremely bearish, since it is negatively correlated with the S&P 500.
600
800
1000
1200
1400
1600
1800
2000
2200
-2000
0
2000
4000
6000
8000
10000
12000
6/1/01 6/1/06 6/1/11 6/1/16
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
Smart Money Index (SMI)
___SMI 50-DMA
___SMI 200-DMA
S&P 500 vs Smart Money Index
©2016, Hertler Market S ignal.com.
www. hertlermarketsignal.com
Smart Money Index (SMI)
___SMI 50-DMA
___SMI 200-DMA
S&P 500 vs Smart Money Index
From a longer term perspective it is apparent that important tops in the SMI occur at
major S&P 500 lows and vice versa. Since a major low is now in place in the SMI, one can
conclude that a major stock market top has formed and a major bear market is in progress
probably still in its early stage.
Hertler Market Signal Update #732 4/03/2016 2
1500
1600
1700
1800
1900
2000
2100
2200
-1500
-1000
-500
0
500
1000
1500
2000
5/1/13 11/1/13 5/1/14 11/1/14
5/1/15 11/1/15 5/1/16
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
LMC (Cumulative Late Market Component of SMI)
S&P 500 vs LMC
____200-DMA
____50-DMA
The late market component (LMC) of the Smart Money Index climbed to a new high. The
LMC has not correlated reliably with stock prices. Since at least 2013 it has been declining as
stocks rose. Then after stocks topped, it belatedly began the present uptrend. Beginning in
August 2015 it has been rising much more strongly than the S&P 500, so if the negative
correlation since 2013 holds, it would be consistent with a continuing stock bear market. The
“classical” interpretation would be very bullish, however.
1500
1600
1700
1800
1900
2000
2100
2200
7500
8000
8500
9000
9500
10000
10500
11000
11500
5/1/13 11/1/13 5/1/14 11/1/14 5/1/15 11/1/15 5/1/16
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
EMC (Cumulative Early Market Component of SMI)
S&P 500 vs EMC
___EMC 200-DMA
____EMC 50-DMA
The EMC (early market component of the SMI) continues to consolidate. Although in
theory the EMC is supposed to represent the dumb money the emotional traders it is
apparent that the EMC correlates very well with the S&P 500. It has been in a downtrend for over
a year and very bearish. The EMC will likely be repelled to the downside by the descending 50-
day moving average, which would be bearish.
Hertler Market Signal Update #732 4/03/2016 3
600
800
1000
1200
1400
1600
1800
2000
2200
0
2000
4000
6000
8000
10000
12000
6/1/01 6/1/06 6/1/11 6/1/16
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
EMC (Cumulative Early Market Component of SMI)
S&P 500 vs EMC
___EMC 200-DMA
____EMC 50-DMA
The long-term plot of EMC vs S&P 500 is consistent with the formation of a major market
top. The current stock rally does not appear to be either a new bull market or a continuation of the
old onejust a bear market rally.
300
400
500
600
700
800
900
1000
40
50
60
70
80
90
100
6/1/00 6/1/02 6/1/04 6/1/06 6/1/08 6/1/10 6/1/12 6/1/14 6/1/16
S&P 100
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
___BCI 50-Wk MA
Barron's Conf idence Index is a high-grade
bond-index divided by an intermediat e-grade
bond-index. A decline in the lat ter vs. former
is said to generally indicate rising confidence,
pointing to higher stocks and vice versa.
Barron's Confidence Index
S&P 100 vs Barron's Confidence Index
Barrons Confidence Index plunged to a new low at 66.8 last week. Peaks and troughs in
the Confidence Index show some correlation to tops and bottoms in the S&P 100. The
Confidence Index remains very bearish.
Hertler Market Signal Update #732 4/03/2016 4
200
400
600
800
1000
1200
1400
0.05
0.055
0.06
0.065
0.07
0.075
6/1/08 6/1/09 6/1/10 6/1/11 6/1/12 6/1/13 6/1/14 6/1/15 6/1/16
Russell 2000 Small Cap
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
Ratio of Russell 2000 to DJIA
Small Caps vs Ratio of Russell 2000 Small Caps to DJIA
The small cap/DJIA ratio rose last week, but still trails the rise in the Russell 2000 a
divergence. The long standing relative weakness in the small caps is long term bearish. The ratio
has been in a downtrend dating back to March 2014.
1000
2000
3000
4000
5000
6000
1.7
1.8
1.9
2
2.1
2.2
2.3
2.4
2.5
6/1/08 6/1/09
6/1/10 6/1/11 6/1/12 6/1/13 6/1/14 6/1/15 6/1/16
NASDAQ COMP
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
Ratio of NASDAQ Composite to S&P 500
NASDAQ Comp vs Ratio of NASDAQ Comp. to S&P 500
The ratio of the NASDAQ Composite to the S&P rose last week, but as with the small
caps, it trails the rise in the NASDAQ Composite a divergence. Its larger down-trend is bearish.
Hertler Market Signal Update #732 4/03/2016 5
600
800
1000
1200
1400
1600
1800
2000
2200
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
6/1/07 6/1/09 6/1/11 6/1/13 6/1/15
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
AAII Bulls - Bears as Fraction of Bulls + Bears
(12-Week Moving Average)
S&P 500 vs AAII Member 12-Week Bullish Sentiment Oscillator
The 12-week AAII-member Bullish Oscillator continued to rise last week, but it remains
below zero and bullish.
600
800
1000
1200
1400
1600
1800
2000
2200
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
6/1/07 6/1/09 6/1/11 6/1/13 6/1/15
S&P 500
AAII Members Bullish Sentiment Oscillator (3-Wk Moving Avg.)
©2016, Hertler Market Signal.com.
www. hertlermarketsign al.com
S&P 500 vs AAII Member 3-Week Bullish Sentiment Oscillator
The three-week bullish oscillator slipped last week, but it remains above zero and
bearish.
Hertler Market Signal Update #732 4/03/2016 6
PANIC
EUPHORIA
800
1000
1200
1400
1600
1800
2000
2200
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
5/1/09 5/1/10
5/1/11
5/1/12 5/1/13
5/1/14 5/1/15
5/1/16
S&P 500
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
S&P 500 vs Citigroup Panic/Euphoria Model
Citigroup Panic/Euphoria Model
The Citigroup Panic/Euphoria Model (from Barron’s) climbed to -0.21 last week. It is
above the panic zone and moving above trend line resistance. Note that prior to the market top,
the Model remained in the euphoria zone for 9 months.
4000
5000
6000
7000
8000
9000
10000
11000
12000
0
20
40
60
80
100
6/1/07 6/1/09 6/1/11 6/1/13 6/1/15
NYSE Composite
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
Fear Index: Product of VIXO and Total Put/Call
Ratio (50-Day Moving Average)
NYSE Composite vs Fear Index
___Fear 5-DMA
The Fear Index 50-day moving average has turned down as the 5-day moving average
remained at a “fearless” level. Is there a similarity between the two yellow areas?
Hertler Market Signal Update #732 4/03/2016 7
6000
8000
10000
12000
14000
16000
18000
20000
0
1
2
3
4
5
6/1/07 6/1/09 6/1/11 6/1/13 6/1/15
DJIA
©2 01 6, H ert ler M arke t Si gna l. com.
www . hertlermarke tsi gn al.com
IDV (Interday Volatility of DJIA, %) 10-Day Moving Avg.
DJIA vs Interday Volatility of DJIA
The Interday Volatility Index peaked at a lower level than the last peak and fell
sharply to the same level that we saw at the DJIA top. It remains bearish.
6000
8000
10000
12000
14000
16000
18000
20000
-100
0
100
200
300
400
500
600
700
6/1/07 6/1/09 6/1/11 6/1/13 6/1/15
DJIA
VIXO x Interday Volatility (200-DMA)
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
___VXO x IDV
DJIA vs VXO x Inderday Volatility
Product of VXO and Interday Volatility is still very subdued.
Hertler Market Signal Update #732 4/03/2016 8
6000
8000
10000
12000
14000
16000
18000
20000
0
2
4
6
8
10
6/1/07 6/1/09 6/1/11 6/1/13 6/1/15
DJIA
©2016, Hertler Market Signal.com.
www. hertlermarketsignal.com
idv(Intraday Volatility of DJIA, %) 10-Day Moving Avg.
DJIA vs Intraday Volatility of DJIA
The Intraday Volatility Index fell further last week. It is bearish.
-----------
The Smart Money Index is very bearish and consistent with a major market top in place.
Barrons Confidence Index is very bearish.
The Citigroup Model is neutral.
The relative weakness of the small caps is bearish.
The relative weakness of the NASDAQ is bearish.
The Fear Index has peaked and turned lower bearish.
The Volatility Indexes have peaked and have fallen sharply - bearish.
The AAII member 3-week bullish oscillator is still bearish.
The sentiment indicators are mostly bearish and consistent with the bear market
that the Smart Money Index supports.